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The institutional structure of pension systems
should follow population developments

For decades, pension systems were based on the
rising revenue generated by an expanding population (the so-called
demographic dividend). As changes in fertility and longevity created new
population structures, however, the dividend disappeared, but pension
systems failed to adapt. They are kept solvent by increasing redistributions
from the shrinking working-age population to retirees. A simple and
transparent structure and individualization of pension system participation
are the key preconditions for an intergenerationally just old-age security
system.

How to design social protection programs that
poor women can benefit from

Women are more likely than men to work in the
informal sector and to drop out of the labor force for a time, such as after
childbirth, and to be impeded by social norms from working in the formal
sector. This work pattern undermines productivity, increases women's
vulnerability to income shocks, and impairs their ability to save for old
age. Many developing countries have introduced social protection programs to
protect poor people from social and economic risks, but despite women's
often greater need, the programs are generally less accessible to women than
to men.

Uncoordinated unemployment insurance and
severance pay do a poor job of insuring against losses resulting from job
displacement

Job displacement poses a serious earnings threat
to long-tenured workers through unemployment spells and lower re-employment
wages. The prevailing method of insuring job displacement losses involves an
uncoordinated combination of unemployment insurance and severance pay. Less
developed countries often rely exclusively on public mandating of employer
severance pay due to the administrative complexity of unemployment insurance
systems. If both options are operational, systematic integration of the two
is important, although perhaps not possible if severance pay is voluntarily
provided.

Wage losses upon re-employment can seriously harm
long-tenured displaced workers if they are not properly insured

Job displacement represents a serious earnings risk to
long-tenured workers through lower re-employment wages, and these losses may persist for
many years. Moreover, this risk is often poorly insured, although not for a lack of
policy interest. To reduce this risk, most countries mandate scheduled wage insurance
(severance pay), and it is voluntarily provided in others. Actual-loss wage insurance is
uncommon, although perceived difficulties may be overplayed. Both approaches offer the
hope of greater consumption smoothing, with actual-loss plans carrying greater
promise.

Labor productivity is generally seen as bringing
wealth and prosperity; but how does it vary over the business cycle?

Aggregate labor productivity is a central
indicator of an economy’s economic development and a wellspring of living
standards. Somewhat controversially, many macroeconomists see productivity
as a primary driver of fluctuations in economic activity along the business
cycle. In some countries, the cyclical behavior of labor productivity seems
to have changed. In the past 20–30 years, the US has become markedly less
procyclical, while the rest of the OECD has not changed or productivity has
become even more procyclical. Finding a cogent and coherent explanation of
these developments is challenging.

Payroll tax cuts in developing economies might
be beneficial to the formal sector, even when the informal sector is
large

Informal employment accounts for more than half
of total employment in Latin America and the Caribbean, and an even higher
percentage in Africa and South Asia. It is associated with lack of social
insurance, low tax collection, and low productivity jobs. Lowering payroll
taxes is a potential lever to increase formal employment and extend social
insurance coverage among the labor force. However, the effects of tax cuts
vary across countries, often resulting in large wage shifts but relatively
small employment effects. Cutting payroll taxes requires levying other taxes
to compensate for lost revenue, which may be difficult in developing
economies.

Unemployment insurance can protect against
income loss and create formal employment

Unemployment insurance can be an efficient tool
to provide protection for workers against unemployment and foster formal job
creation in developing countries. How much workers value this protection and
to what extent it allows a more efficient job search are two key parameters
that determine its effectiveness. However, evidence shows that important
challenges remain in the introduction and expansion of unemployment
insurance in developing countries. These challenges range from achieving
coverage in countries with high informality, financing the scheme without
further distorting the labor market, and ensuring progressive
redistribution.

Grants and training programs are great complements to
social assistance to help people out of poverty

Productive inclusion programs provide an integrated
package of services, such as grants and training, to promote self-employment and wage
employment among the poor. They show promising long-term impacts, and are often proposed
as a way to graduate the poor out of social assistance. Nevertheless, neither productive
inclusion nor social assistance will be able to solve the broader poverty challenge
independently. Rather, the future is in integrating productive inclusion into the
existing social assistance system, though this poses several design, coordination, and
implementation challenges.

Cash transfers can reduce child labor if
structured well and if they account for the reasons children work

Cash transfers are a popular and successful
means of tackling household vulnerability and promoting human capital
investment. They can also reduce child labor, especially when it is a
response to household vulnerability. But if not properly designed, cash
transfers that promote children’s education can increase their economic
activities in order to pay the additional costs of schooling. The efficacy
of cash transfers may also be reduced if the transfers enable investment in
productive assets that boost the returns to child labor. The impact of cash
transfers must thus be assessed as part of the entire social protection
system.

In transition economies, better property rights
protection and rule of law enforcement can boost job creation and growth

In the transition from central planning to a
market economy in the 1990s, governments focused on privatizing or closing
state enterprises, reforming labor markets, compensating laid-off workers,
and fostering job creation through new private firms. After privatization,
the focus shifted to creating a level playing field in the product market by
protecting property rights, enforcing the rule of law, and implementing
transparent start-up regulations. A fair, competitive environment with
transparent rules supports long-term economic growth and employment creation
through the reallocation of jobs in favor of new private firms.